Save-A-Lot owner will probably take a loss on struggling grocery chain

May 10, 2019

By David Nicklaus | St. Louis Post-Dispatch

Not long ago, Save-A-Lot was one of the supermarket industry’s rising stars, adding stores and raking in profits for its parent company.

Now, two and a half years after being sold to a Canadian private equity firm, the discount chain is struggling. Weighed down by $728 million in debt and losing market share to German-owned chains Aldi and Lidl, Save-A-Lot reportedly is for sale once again.

One analyst thinks no buyer will offer close to the $1.4 billion that parent company Onex paid in 2016. “A responsible offer would be for Onex to sell Save-A-Lot for $1 and assume half the debt,” says Burt Flickinger III, Managing Director of Strategic Resource Group.

Save-A-Lot was founded in Cahokia in 1977 as a hard discount grocer, meaning that it offered a limited assortment at low prices. It was sold to Wetterau, a Hazelwood-based wholesaler, in 1988, and Minneapolis-based Supervalu bought Wetterau in 1993.

That was a good fit for two decades. Supervalu invested the capital Save-A-Lot needed to thrive, and the discount business provided growth when Supervalu’s other chains were losing ground to Walmart.

Save-A-Lot grew from 350 stores in 1992 to more than 1,300 by 2012, then hit a plateau.

Supervalu had three different CEOs in the last four years it owned Save-A-Lot, and Flickinger says the chain suffered from a lack of investment. The parent company also raised wholesale prices, he said, putting pressure on independent licensees who own two-thirds of the current 1,230 Save-A-Lot stores.

In one telling stumble, Supervalu expanded Save-A-Lot into Southern California but Onex pulled out of that market in 2017, closing 13 stores.

Onex brought in an executive team headed by a former Lidl executive, moved Save-A-Lot to a new headquarters in St. Ann and introduced a new round logo, but sales continued to fall.

“To Onex’s credit, they brought in new, successful leadership at the executive level, but the stores are not successful,” Flickinger said. Save-A-Lot once had higher per-store sales than Aldi, he said, but is now well behind its bigger rival on that measure.

Meanwhile, Aldi is expanding aggressively in the U.S. and has modernized its stores with wider aisles, better lighting and more fresh and organic products.

“I feel like Aldi may have been the straw that broke the camel’s back for Save-A-Lot,” says Jason Long, a consultant at Eye on Retail in St. Louis. “It feels like the Save-A-Lot brand is getting a little stale.”

Moody’s has downgraded Save-A-Lot’s debt twice since the Onex deal; it’s now rated Caa1, signifying “poor standing and … very high credit risk.”

In November, Moody’s noted that the hard-discount grocery segment is “an attractive market niche” but with intense competition. It projected that Save-A-Lot’s same-store sales would fall 4 percent in 2018.

Save-A-Lot was trying to get sales growing again by investing in stores, cutting prices and streamlining operations, Moody’s said, but such initiatives take time to pay off.

The large number of franchised stores, the report added, limits management’s ability to execute its strategy. “Save-A-Lot has limited control over pricing at the licensee stores, which can adversely impact consumer perception of the Save-A-Lot brand and negatively impact topline growth,” Moody’s said.

Liquidity was also a concern. “We expect the company to burn a significant amount of cash in the next 12 months,” the Moody’s report said.

Six months after that debt downgrade, Onex decided to let a new owner try to complete the turnaround. Now we’ll see how big a loss it incurs to get out of the grocery business.